Neoliberalism

Disputes over the definition and the name

Neoliberalism is a current of economic liberalism grounded in the globalisation of capital that came to prominence from the 1970s, and it seeks a modern revival of laissez-faire principles against the growth of welfare-state intervention. The policy package represented by the so-called Washington Consensus includes tax cuts, privatisation, deregulation, depoliticisation, labour market flexibilisation, economic globalisation, free trade, monetarism, austerity and reductions in government spending.

The term, however, has competing definitions and is often left undefined in scholarly work. A study of 148 scholarly articles found that neoliberalism is almost never defined but is used in several senses: ideology, economic theory, development theory and economic reform policy. Block and Somers describe a dispute over whether to call it neoliberalism, laissez-faire or 'free market ideology'; McChesney calls it 'capitalism with the gloves off', and Kotsko describes it as a political theology aspiring to a complete way of life. The Handbook of Neoliberalism warns that the lack of specificity reduces its analytic capacity, and Stedman Jones calls it too often a catch-all shorthand.

History

The name was chosen at the Walter Lippmann Colloquium held in Paris in August 1938, where 25 liberal intellectuals including Lippmann, Hayek, Mises, Röpke, Rüstow and Rougier gathered to renew liberalism after the Great Depression. The colloquium defined neoliberalism as involving the priority of the price mechanism, free enterprise, the system of competition and a strong and impartial state, but deep disagreement arose over the state's role between Rüstow and Lippmann's strong-state supervision and Mises and Hayek's anti-barrier position. The effort was mostly ineffectual and forgotten after World War II, yet it was the precursor to the Mont Pelerin Society, established in 1947 with founding members including Hayek, Friedman, Karl Popper, George Stigler and Mises, which sought an alternative to both collapsed laissez-faire and New Deal liberalism and British social democracy.

In the 1950s and 1960s most scholars understood neoliberalism as the social market economy and its theorists (Eucken, Röpke, Rüstow, Müller-Armack); to be neoliberal then meant advocating a modern economic policy with state intervention, which clashed with the laissez-faire camp of classical liberals such as Mises. Friedman's 1951 essay was titled 'Neo-Liberalism and its Prospects'.

The policy turn came after a succession of 1970s economic crises and stagflation. After the 1973 crisis ended the post-war boom, Keynesianism and other state-capitalist forms proved unable to raise or maintain the rate of profit, and ruling classes converged on privatisation, outsourcing, deregulation, unrestricted capital flows and indirect taxation. Davidson argues this would almost certainly have happened even without Friedman and his associates, and that it was not a master plan derived from neoliberal ideology.

Harvey dates the revolutionary turning point to 1978–80: Deng Xiaoping's liberalisation steps in 1978, Thatcher's election in May 1979 and Reagan's election in 1980. The first experiment in neoliberal state formation came earlier, in Chile under Pinochet after the early-1970s economic crisis.

In the United States, Lewis Powell's 1971 confidential memorandum to the Chamber of Commerce called on the business community to mobilise and contributed to the rise of conservative and libertarian think tanks such as the Business Roundtable, the Heritage Foundation, the Cato Institute and the Manhattan Institute. Carter-era deregulation of trucking, banking and airlines and the appointment of Volcker, Reagan-era tax cuts, increased defence spending and financial deregulation, and Clinton-era NAFTA, the Commodity Futures Modernization Act, the repeal of Glass-Steagall and welfare cuts followed. Gerstle writes that Reagan was the ideological architect of the neoliberal order while Clinton was its key facilitator, and that the shift from Keynesian ideas toward neoliberalism influenced the fiscal strategies of New Democrats and New Labour.

Examples

Chile is the exemplary first experiment and a contested case. After Allende's socialist reorientation (1970–1973), a 1973 coup established a repressive military junta under Pinochet, and the Chicago Boys, Chilean economists trained under Friedman and Harberger, implemented rapid privatisation of state enterprises, deregulation and trade-barrier reductions; from 1978 policies infused competition and individualism into labour relations, pensions, health and education. Inflation fell from over 600% in 1974 to below 50% by 1979 and below 10% before the 1982 crisis, and GDP growth spiked, but inequality widened as wages and benefits to the working class were reduced. Scholars remain divided between calling the period the 'Miracle of Chile' and calling it a failure that produced extreme income inequality.

Elsewhere in Latin America, Argentina's 1976 military dictatorship economic plan led by Martínez de Hoz was an early neoliberal programme of fiscal austerity, salary freezes and trade liberalisation, after which industry declined and poverty rose from 9% in 1975 to 40% by the end of 1982; from 1989 to 2001 further policies under Cavallo focused on privatising public services, financial deregulation, free trade and greater labour market flexibility. Mexico accepted IMF loans in 1983 on conditions to privatise state industries, devalue the currency, decrease trade barriers and restrict spending, with Salinas doubling down from 1988 before NAFTA was signed. Brazil adopted neoliberal policies in the late 1980s, cutting tariff rates from 32% in 1990 to 14% in 1994 and ending import-substitution industrialisation.

In Peru, the Fujimori government abandoned its campaign platform and adopted more aggressive neoliberal policies than its opponent Vargas Llosa, with a 'shock' of a 300% tax increase, unregulated prices and the privatisation of 250 state entities, which caused immediate suffering among poor Peruvians. The IMF and World Bank conditioned structural adjustment loans on privatisation, trade liberalisation, strong private property rights and spending reductions.

Beyond the UK and the US, examples include New Zealand's Rogernomics under the Fourth Labour Government from 1984, with deregulation, tariff and subsidy removal, the floating of the dollar in March 1985, state-owned enterprise reform and large job losses; Australian 'economic rationalism' under the Hawke and Keating Labor governments from 1983 to 1996; Germany's ordoliberal social market economy; Japan's LDP policies after 1980; and Egypt's al-Infitah under Sadat and Mubarak's reforms.

Relations

Among intellectual lineages, the Austrian School (Menger, Böhm-Bawerk, Wieser, Mises, Hayek) is tied to neoliberal thought through its criticisms of government intervention, while the Chicago school rejected Keynesianism in favour of monetarism until the mid-1970s and then new classical macroeconomics, and is associated with Friedman, Stigler, Coase and Becker. Slobodian proposed a 'Geneva School' of ordo-globalists promoting global institutions to safeguard unimpeded capital movement. Monetarism is associated with Volcker's Fed and with Chile's central bank.

In class-based accounts, Harvey describes neoliberalism as a 'class project' carried out by the corporate capitalist class to increase the class power of economic elites; Duménil and Lévy posit the restoration and increase of upper-class power, income and wealth as primary objectives; and Kotz contends it is based on thorough domination of labour by capital.

Critics include Stiglitz, Sen, Hudson, Ha-Joon Chang, Pollin, Piketty, Wolff, Chomsky, Harvey, Žižek, Cornel West and Klein. Financialisation, globalisation, the 'precariat', mass incarceration (Wacquant's 'centaur state') and right-wing populism are discussed as related phenomena.

Distinctions

Neoliberalism is distinct from classical liberalism. The neoliberals did not believe the desired market order was a spontaneous result of human activity but one that would have to be brought into being by the state, and the notion that neoliberalism is about markets as opposed to the state has been called a myth. Davidson argues that neoliberalism is not about state retreat but about changing what the state does; the state pulled back on public services while expanding policing and incarceration.

As the term spread through academia in the 1980s in association with Pinochet's Chile reforms it acquired negative connotations and was used principally by critics of market reform. Some writers still criticise it as a leftist slur, while Gerstle calls it a legitimate term and distinguishes it from traditional conservatism. Korean-language accounts emphasise opening other countries' markets through political means and multilateral pressure via the WTO, the World Bank and the Asian Development Bank, and cite as criticisms blind faith in economic rationalism, economic elitism, social-Darwinist justification of inequality, erosion of democracy and deepening polarisation.